Nexus will continue to focus on seed and earlystage deals, but the new fund gives it ammunition to also back its portfolio companies when they need bigger funds of $50-100 millionMadhav Chanchani | ET Bureau | December 08, 2015, 07:39 IST

BENGALURU: Nexus Venture Partners, an early investor in Snapdeal, has raised more than $450 million (Rs 2,800 crore) for its fourth fund, becoming the first homegrown venture capital firm to cross $1 billion in assets.

The new corpus signals some hope for domestic startups at a time when it has become difficult for entrepreneurs to raise fresh funds, mainly as investors have turned wary of the mismatch between slowing growth and inflated valuations.

Nexus will continue to focus on seed and earlystage deals, but the new fund gives it ammunition to also back its portfolio companies when they need bigger funds of $50-100 million.

The VC firm is eyeing tech-enabled businesses in sectors like consumer retail, financial services, healthcare and education, in addition to enterprise and software companies.

ET was the first to report in February that Nexus was in talks with limited partners, or LPs — industry parlance for entities like pension funds and endowments that invest in private equity or venture capital funds — to raise up to $400 million.

“We did not visit a single LP for fundraising,” said Naren Gupta, cofounder of Nexus. “Existing LPs subscribed almost the full 100%. We proactively admitted a couple of new investors for strategic reasons.”

Nexus’ latest fund mobilisation is significant also because venture investments in India are dominated by the local affiliates of Silicon Valleybased firms such as Sequoia Capital, Accel Partners and Matrix Partners.

Nexus is now the second-largest venture capital firm in India with $1.2 billion raised across four funds, trailing Sequoia that has raised $2.2 billion. “(Nexus’) LP base and speed of fundraising process is now comparable to the Silicon Valley peers,” said a representative of one of the limited partners that pooled money into Nexus’ latest fund. Most of the money for the new fund came from Nexus’ existing LPs in North America, Europe and Asia.

The Bengaluru-based venture capital firm could have raised more than $450 million but the LPs asked it to keep the fund size small, this person said, adding that the fund was closed in the first half of this year.

With Nexus’ latest fundraise, the total capital raised by India-focussed funds this year adds up to about $1.5 billion—up from about $1 billion in 2014 —with SAIF Partners closing a fundraise of $350 million, Accel Partners $305 million, Kalaari Capital $290 million and Lightspeed Venture Partners $135 million.

SIZE MATTERS

Nexus’ new corpus of $400 million is the second largest raised in India after Sequoia Capital India’s $530 million raised in May 2014. Nexus’ largest homegrown rivals Kalaari and Helion Venture Partners have raised $650 million and $600 million, respectively, across three funds. All three are based in Bengaluru.

But a big fund brings its own set of challenges.

“When you raise a $400-million fund, you are also expected to give a return of at least 2.5-3x (times the investment), which means if you own 15-20% of portfolio companies on an average, you need to create $5-8 billion of value,” said Parag Dhol, managing director at Inventus Capital, which has about $158 million of assets under management.

“The numbers become harder and harder to visualize.” Even so, Nexus’ strategy of investing in the US makes for a good cushion if India’s startup ecosystem suffers a slowdown, Dhol said.

Nexus, which has also backed online retail-focussed logistics firm Delhivery and data protection services provider Druva, was founded in 2006 by three former entrepreneurs Naren Gupta, Sandeep Singhal and Suvir Sujan with a focus of investing in both India and Silicon Valley.

The strategy allowed Nexus to sell its investments in some US companies early, such as through Citrix’s acquisition of its portfolio company Cloud.com for over $200 million and Red Hat’s purchase of Gluster for an undisclosed amount in 2011.

Last week, Nexus exited its investment in MapMyIndia by selling its stake to Flipkart in a deal that valued the digital-mapping firm at $260 million. Nexus’ overseas investments, however, do not account for more than one-third of its total capital deployed.

“A majority of the capital is invested in local companies because they need much more capital,” said Gupta, who is based out of the firm’s Silicon Valley office. “Firms serving the India market like Snapdeal, Shopclues, Delhivery, Craftsvilla represent 70-80% of the capital we have invested.”